Tuesday, October 30, 2018

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Today's links:

Is Smart Beta really smart? (Link)

Disrupting addresses using a three word system (Link)

Probiotics & antibiotics create a killer combination (Link)

The fall issue of Graham & Doddsville (Link)

Check out Tye's email on the reappearance of our old friend: Volatility

From: Tye Bousada
Sent: October 26, 2018 5:27 PM
Subject: Thoughts


I’m sure you’ve noticed volatility is back.  I’m sure you also know from the mood of the investment team that we like it. 

Since 1980, the average intra year peak to trough decline in the S&P 500 Index has been around 13.8%.  For the MSCI World Index, the average since 1980 has been about 14.4%*. 

The last time that we saw an intra year decline hit the average was 2011.  Said differently, it’s been 7 years since we’ve had average volatility in the markets (never mind above average volatility).  As I’m writing this, we are still below the average on a year to date basis – but we are closing in on it quickly. 

If history is a guide, we will look back at this time with fond memories.  We entered this period of volatility (about 3 weeks ago) with over 13% cash in the EdgePoint Global Portfolio.  We are close to 7% today.  We have added one new idea during the last few weeks that makes up 1% of the Portfolio.  The remaining 6% has gone into existing ideas.

As of last night, EdgePoint Global Portfolio Series F was close to flat (+0.44%) on a YTD basis.  What’s particularly interesting, however, is that approximately 75% of our names are down by 20% or more from their intra year peaks, and about 50% are down by 20% or more on a YTD basis**.

You might be wondering how is it possible that our Global Portfolio is up on a YTD basis with around 50% of our names down by 20% or more?  The answer is a portfolio appropriately diversified by business idea:  Ted had a couple of his ideas taken out at nice premiums this year.  We crystalized a number of gains throughout the year in ideas like Anthem, Brenntag, Deutsche Wohnen, Wabtec, and Sherwin Williams.  We also have had a number of material winners this year like Swedish Orphan Biovitrum, Shiseido, Ubiquity, and CSX that are still in the Portfolio.  For 10 years you’ve talked to our partners about the importance of having a portfolio diversified by business idea and constantly trying to upgrade the quality of our portfolios on a daily basis. Volatile markets like these highlight why these concepts are important.

I would like to take you through each idea in the Portfolios one at a time and explain why we are optimistic about their futures and why we think these past few weeks of downside volatility in their share prices has been a gift.  Truth is it’s 5:30 on a Friday and I have to pick up Bella and Liam, so I don’t have the time to walk through each of our ideas.  However, there is that old saying that actions speak louder than words – as many of you know, in the last few weeks I have materially increased my personal exposure to the EdgePoint Global and EdgePoint Canadian Portfolios.       

You know that we have no idea how long this downturn is going to last.  We have approached the last few weeks armed with our investment approach and long term thinking.  We will continue to rely on both going forward.    


P.S.  Anna and Sayuri told me I had to put this table and disclaimers for compliance reasons when I send out emails like this.  I know, ugh.

*As at September 30th. Source: Bloomberg, price returns in US$.
**Source: Factset Research Systems Inc.

Annualized returns as at September 30, 2018:
EdgePoint Global Portfolio, Series A
1-year: 16.61%; 3-year: 16.15%; 5-year: 17.77%; since inception (11/17/2008): 18.41%

Series F available to investors in fee-based/advisory fee arrangement and excludes trailing commissions.

Benchmarks we’ve chosen for the Portfolio:

EdgePoint Global Portfolio: MSCI World Index is a broad-based, market-capitalization-weighted index comprising equity securities available in developed markets globally. The index was chosen for being a widely used benchmark of the global equity market.

Why our performance may differ from the benchmark: We manage the Portfolio independently of the index we use as long-term performance comparisons. Differences including security holdings and geographic/sector allocations may impact comparability and could result in periods when our performance differs materially from the index.

Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Please read the prospectus and Fund Facts before investing. Copies are available from your financial advisor or at www.edgepointwealth.com. Unless otherwise indicated, rates of return for periods greater than one year are historical annual compound total returns net of fees including changes in unit value and reinvestment of all distributions, and do not take into account any sales, redemption, distribution or optional charges, or income taxes payable by any securityholder, which would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This is not an offer to purchase. Mutual funds can only be purchased through a registered dealer and are available only in those jurisdictions where they may be lawfully offered for sale. This document is not intended to provide legal, accounting, tax or specific investment advice. Information contained in this document was obtained from sources believed to be reliable; however, EdgePoint does not assume any responsibility for losses, whether direct, special or consequential, that arise out of the use of this information. Portfolio holdings are subject to change. EdgePoint mutual funds are managed by EdgePoint Investment Group Inc., a related party of EdgePoint Wealth Management Inc. EdgePoint® and Owned and Operated by InvestorsTM are registered trademarks of EdgePoint Investment Group Inc.